Buying a home is a huge financial step in anyone’s life. Luckily, you often won’t have to go through the process alone. Many people buy a home with a partner, whether a spouse, sibling or even business partner. When going through the mortgage process with another person, you have the option of choosing an individual or a joint mortgage. Not sure what a joint mortgage is or if it’s right for you?
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What Is a Joint Mortgage?
A joint mortgage means you and your partner (or up to three partners) apply for the mortgage together. Partners often apply with a joint mortgage to get access to better mortgage rates and terms. Applying jointly can even help your eligibility status in the first place. Keep in mind that a joint mortgage is not joint ownership.
When you apply for a joint mortgage, both applicants’ incomes and assets are looked at as a combined number. This is good news when you’re trying to qualify for a larger loan. It may not be great news when it comes to your debts. Your individual debts will also be looked at as a combined number. So if one partner has a ton of debt, that may weigh down the application.
However, if you are paying back your debts responsibly, your credit scores will reflect that. You should know that your credit score is a big factor when it comes to mortgages. So how does that work with a joint mortgage? The answer will vary depending on your lender. Some lenders will only look at the lower score of the applicants. Other lenders will look at the middle score of both applicants. Still other lenders might look at the credit score of the higher earner. Because of these options, you must check with your potential lenders to know what they’re looking for. It may also help to check your credit scores beforehand so you and your partner know what you’re dealing with.
Pros of a Joint Mortgage
There are a number of pros to getting a joint mortgage over an individual one. For one, your partner’s finances can boost your application’s appeal if your own finances come up a little short. If you don’t have a high enough income, combining a partner’s income with yours can look better on an application. If your credit history is a little rocky, getting a joint mortgage with someone with a good credit history can really help.
With a joint mortgage, you and your partner combine incomes. This means that you can apply for a larger loan than either of you could by yourselves. That way you have the chance to buy a larger, more expensive property.
There are also tax benefits to getting a joint mortgage. If the mortgage holders are on the property title and live in the home, everyone can benefit from the income tax rebate. Joint mortgage holders can also save some money on the property transfer tax. Instead of one owner paying the whole tax, each joint mortgage holder gets a bit of it.
Cons of a Joint Mortgage
While combining your assets in an application can help one person up, it can go the other way. Say you’re applying with your spouse who has a pretty bad credit history. If your history isn’t stellar enough, his score could could harm both your chances. In that case, it might be better to apply for an individual mortgage.
Most of the cons of a joint mortgage come after you have the mortgage. With a joint mortgage, everyone involved takes responsibility for paying the loan. All borrowers must make payments on time or risk penalizing everyone else as well. Further, if someone’s payment comes up short, everyone else must pick up the slack. It is definitely difficult to predict someone losing a job. But you may want to stick to partnering only with stable, trustworthy people to avoid any risk. Additionally, even in the case of divorce, both parties will still be responsible for the mortgage.
While not necessarily a con to joint mortgages, there is the question of what happens should a partner die. If you structure your mortgage with right of survivorship, ownership of the home will automatically go to the surviving partner. If you choose joint tenants in common, though, ownership will have to go through probate court.
Joint mortgages aren’t uncommon, especially among married couples. When deciding whether to get one, you have a few things to consider. You have to determine what kind of mortgage you want and how you can qualify for it. If applying through a joint mortgage will expand your mortgage opportunities, then it could be the right move for you. Just make sure you and your partner(s) are on the same page when it comes to repayment.
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